"... We show that the most important observable capital structure determinant for many firms is the capital structure of their peers; firms make financing decisions in large part by responding to the financing decisions of peer firms, as opposed to changes in firm-specific characteristics. We also find t ..."

We show that the most important observable capital structure determinant for many firms is the capital structure of their peers; firms make financing decisions in large part by responding to the financing decisions of peer firms, as opposed to changes in firm-specific characteristics. We also find that smaller and less successful firms are more likely to adjust their capital structures and financial policies in response to the actions of their larger, more successful peers. Finally, we quantify the externalities engendered by peer effects, which can amplify the impact of changes in exogenous determinants on leverage by over 70%.Most research on corporate financial policy assumes capital structure choices are made independent of the actions or characteristics of their peers. In other words, a firm’s capital structure is typically assumed to be determined by a function of its marginal tax rate, expected deadweight loss in default, information environment, and incentive structure. As such, the role for peer firm behavior in affecting capital structure is often ignored, or at most an implicit one through its unmeasured impact on firm-specific determinants.

Rubinstein, Andrei Shleifer, Ivo Welch, as well as numerous seminar participants for helpful comments and suggestions. Juliana Portella provided excellent research assistance. We also thank the Garwood Center for Corporate Innovation, the Russell Sage Foundation and UCLA CIBER for financial support. Finally, we thank the management and staff of the cooperating brokerage firm for their efforts during the implementation of the study. There was no financial conflict of interest in the implementation of the study; no author was compensated by the partner brokerage or by any other entity for the production of this article. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peer-reviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.

"... Using hand-collected data on divisional managers at S&P 500 firms, we study their role in internal capital budgeting. Divisional managers with social connections to the CEO receive more capital. Connections to the CEO outweigh measures of managers ’ formal influence, such as seniority and board ..."

Using hand-collected data on divisional managers at S&amp;P 500 firms, we study their role in internal capital budgeting. Divisional managers with social connections to the CEO receive more capital. Connections to the CEO outweigh measures of managers ’ formal influence, such as seniority and board membership, and affect both managerial appointments and capital allocations. The effect of connections on investment efficiency depends on the tradeoff between agency and information asymmetry. Under weak governance, connections reduce investment efficiency and firm value via favoritism. Under high information asymmetry, connections increase efficiency and value via information transfer. JEL classification: G31; G32

"... Using a high-stakes field experiment conducted with a financial brokerage, we implement a novel design to separately identify two channels of social influence in financial decisions, both widely studied theoretically. When someone purchases an asset, his peers may also want to purchase it, both beca ..."

Using a high-stakes field experiment conducted with a financial brokerage, we implement a novel design to separately identify two channels of social influence in financial decisions, both widely studied theoretically. When someone purchases an asset, his peers may also want to purchase it, both because they learn from his choice (“social learning”) and because his possession of the asset directly affects others ’ utility of owning the same asset (“social utility”). We randomize whether one member of a peer pair who chose to purchase an asset has that choice implemented, thus randomizing his ability to possess the asset. Then, we randomize whether the second mem-ber of the pair: (1) receives no information about the first member, or (2) is informed of the first member’s desire to purchase the asset and the result of the randomization that determined possession. This allows us to estimate the effects of learning plus possession, and learning alone, relative to a (no information) control group. We find that both social learning and social utility channels have statistically and economically significant effects on investment decisions. Evidence from a follow-up survey reveals that social learning effects are greatest when the first (second) investor is financially sophisticated (financially unsophisticated); investors report updating their

"... We conducted a field experiment to evaluate the effect of receiving information about the retirement savings decisions of one‘s peers. Non-participants and low savers in one firm‘s 401(k) plan received letters enabling them to enroll or increase their plan contribution rate by returning a simple r ..."

We conducted a field experiment to evaluate the effect of receiving information about the retirement savings decisions of one‘s peers. Non-participants and low savers in one firm‘s 401(k) plan received letters enabling them to enroll or increase their plan contribution rate by returning a simple reply form. Some employees were randomly assigned to receive peer information: a statement about the fraction of their coworker peers who were participating in the plan or a statement about the fraction of their coworker peers who were contributing at least 6% of their salary to the plan. Other employees were randomly assigned to receive no such peer information. We find conflicting evidence on the impact of peer information. Among nonunionized non-participants, there is some evidence that peer information leads to a small increase in participation. But among unionized non-participants, savings plan enrollment was reduced by peer information. These results highlight the possibilities and limitations of using peer information interventions to influence behavior.

JOB MARKET PAPER This paper identifies the effect of corporate networks on firms ’ financial investment and executive pay decisions. Corporate networks arise through board interlocks, which provide a frequent and important channel for non-market interactions amongst firms. Using panel data for all publicly traded companies in India I estimate peer effects in firm policies, defining each firm’s reference group as the set of all other firms with whom it shares one or more directors. Identification of dynamic network peer effects, which derive from endogenous associations, is achieved by exploiting natural breaks in network evolution that exogenously change the composition of peers. These breaks occur as a result of local network shocks – death or retirement of shared directors – that are stochastic and external to the network formation process. I find significant network peer effects that are positively associated with firms ’ investment strategy and executive compensation. I also explore heterogeneity in peer effects by distinguishing between network peers who belong to the same industry from those that do not, and find a greater effect of across-industry network peers.

"... While much is made of the inefficiencies of “short-termism ” in executive compensation, in reality very little is known empirically about the extent of such short-termism. This paper develops a new measure of CEO pay duration that reflects the vesting periods of different pay components, thereby qua ..."

While much is made of the inefficiencies of “short-termism ” in executive compensation, in reality very little is known empirically about the extent of such short-termism. This paper develops a new measure of CEO pay duration that reflects the vesting periods of different pay components, thereby quantifying the extent to which compensation is short-term and the extent to which it is long-term. Using this measure we document a robust negative relationship between CEO pay duration and abnormal accruals: firms that offer short-duration pay contracts to their CEOs have higher abnormal accruals, indicating a stronger proclivity to boost short-term earnings, even after dealing with omitted-variables and endogeneity concerns. We also propose a model that highlights how pay duration will be related to firm characteristics and find supportive evidence for the model’s predictions: CEO pay duration is longer in firms with longer-duration projects and in firms with less risky cash flows.

"... This paper develops a model of communication and decision-making in corporate boards. The key element of the paper is that the quality of board communication is endogenous, because it depends on the e¤ort directors put into trying to communicate their information to others. In the model, directors m ..."

This paper develops a model of communication and decision-making in corporate boards. The key element of the paper is that the quality of board communication is endogenous, because it depends on the e¤ort directors put into trying to communicate their information to others. In the model, directors may have biases regarding board decisions and may also be reluctant to disagree with other directors. If the only inter-action between directors is at the decision-making stage, when decisions are made but discussion is limited, these frictions impede e¤ective decision-making because directors decisions are not fully based on their information. However, if in addition directors can communicate their information more e¤ectively at a cost, then both stronger biases and stronger concerns for conformity at the decision-making stage might improve the boards decisions, because directors have a stronger motivation to convince others of their position. The paper provides implications for the design of board policies, in-cluding the use of open vs. secret ballot voting, the frequency of executive sessions of directors, board structure, and the role of committees. I am very grateful to my dissertation committee, Anat Admati, Paul Peiderer, and Je¤rey Zwiebel, for their guidance and valuable suggestions. I am also grateful to Francesco DAcunto, Peter DeMarzo,

"... We examine how unfavorable social comparisons differentially spur employees of varying hierarchical levels to engage in deception. Drawing on literatures in social psychology and workplace self-esteem, we theorize that negative comparisons cause senior employees to seek to improve reported relative ..."

We examine how unfavorable social comparisons differentially spur employees of varying hierarchical levels to engage in deception. Drawing on literatures in social psychology and workplace self-esteem, we theorize that negative comparisons cause senior employees to seek to improve reported relative performance measures via deception. In a first study, we use deceptive self-downloads on SSRN, the leading working paper repository in the social sciences, to show that employees higher in a hierarchy are more likely to engage in deception, particularly when the employee has enjoyed a high level of past success. In a second study, we confirm this finding in two scenario-based experiments. Our results suggest that longer-tenured and more successful employees face a greater loss of self-esteem from negative social comparisons, and are more likely engage in deception in response to reported performance that is lower than that of peers.

"... This paper provides evidence that graduates of elite public institutions in In-dia have an earnings advantage in the labor-market even though attending these colleges has no discernible effect on learning outcomes. Data do not bear out the predictions of signaling theories of human capital. Using or ..."

This paper provides evidence that graduates of elite public institutions in In-dia have an earnings advantage in the labor-market even though attending these colleges has no discernible effect on learning outcomes. Data do not bear out the predictions of signaling theories of human capital. Using original survey data, I find that college networks do not facilitate job search. Also, the wage-premium does not dissipate with experience. However, the number of college friends in the same industry does explain the wage premium. These results support the hypoth-esis that the labor market rewards the connections students ’ form at elite colleges.